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Disney's New Orlando Toy Story Land to Boost Park Growth

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Disney’s DIS Parks & Resorts business has been a major growth driver in recent times. In the last-reported quarter, segment revenues increased 13.5% year over year to $4.88 billion, while operating income surged 27.2% to $954 million.

Higher guest attendance at Walt Disney World Resort and higher sponsorship revenues drove results. Guest spending increased, due to higher average ticket prices, merchandise and beverage spending, and a surge in room rates.

Per capita spending and per room spending at domestic hotels increased 6% and 12%, respectively. Occupancy increased 2 percentage points to 90%. Attendance at Disney’s domestic parks increased 5% and reflects a 2 percentage point benefit from the timing of the Easter holiday.

The reported quarter included one week of the Easter holiday as compared with the year-ago quarter that had none.

Latest Toy Story Land to Drive Growth

Parks & Resorts are primarily benefiting from Disney’s strategy of better-load balancing of attendance throughout the year, which is driving up attendance rate. Notably, Walt Disney World hosted more than 50 million visitors through its theme parks in 2017.

Moreover, Disney’s continuing investment on enhancing attraction of the theme parks is reaping benefits. The segment continues to show robust performances both domestically and internationally, owing to rise in customer spending due to higher ticket prices and attendance.

Disney recently opened the Toy Story Land in Orlando. The 11-acre theme park is a recreation of “Andy’s backyard” from the popular trio of Toy Story animated films from Pixar, a Disney studio. The key attractions of the latest Toy Story Land are rides like Slinky Dog Dash, Alien Swirling Saucers and Toy Story Mania.

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We believe the new Toy Story Land will help in driving visitor growth in the Orlando Park. The company also launched Toy Story Land in Shanghai on Apr 26, which is expected to boost the company’s brand visibility in China.

Further, constructions of Star Wars Lands in Disneyland and Walt Disney World are in progress. Addition of popular themes like Star Wars and Toy Story to Parks & Resorts are likely to increase footfall.

We believe that these new additions will continue to boost the attendance rate at Parks & Resorts, which will contribute more than 33% of revenues, going forward.

Studio Entertainment Segment to Drive Growth

Disney is expected to benefit from robust sales of The Incredibles 2 and Avengers: Infinity War’s impressive collections.

We believe that back-to-back success of Avengers: Infinity War and Black Panther makes the studio business a key catalyst for Disney. In fact, the success provided a huge boost to the media giant’s strategy of monetizing franchises from acquired studios like Marvel and Lucasflim.

Disney’s Studio Entertainment segment contributes almost 15% to the company’s top line. The company has an impressive line up of big budget movies, slated to be released over the next 18 months. The portfolio includes movies involving Marvel Cinematic Universe (MCU) characters like Ant-Man and the Wasp, Captain Marvel (2019), and next Avengers (2019) movie.

Apart from MCU, Disney is also set to release Toy Story 4 and Frozen 2 along with Star Wars: Episode IX.

The solid content pipeline is also expected to boost Disney’s Consumer Products division as demand for merchandise associated with blockbuster flicks skyrockets, as was the case with Frozen.

Disney also plans to add Marvel-related content to its new standalone streaming service that is set to launch in late 2019.

The termination of distribution agreement with Netflix NFLX will enable it to offer rich content, exclusively from Disney, Pixar, Marvel and Lucasfilm. This will help it to compete against Amazon AMZN Prime video service, Hulu and streaming services from other cable operators like Comcast CMCSA, apart from Netflix.

Currently, Disney has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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